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tv   Nightly Business Report  PBS  March 22, 2012 6:30pm-7:00pm EDT

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>> tom: from china to europe, worries about two big global economies sink u.s. stocks. how big of a risk do they present for the american economy and american investors? >> reporter: i'm erika miller in new york. mcdonald's will soon have a new leader. i'll tell you what strategy changes could be on the menu. >> susie: then, we continue our look at the historic battle over the president's health care law, and what's at stake in next week's supreme court hearing. it's "nightly business report" for thursday, march 22. this is "nightly business report" with susie gharib and tom hudson.
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"nightly business report" is made possible by: captioning sponsored by wpbt >> susie: good evening, everyone. new worries about two major global economies slowing led to a down day for stocks. first, a key report showed china's factory activity dropped dramatically for the fifth month in a row, and tom, that news reverberated in markets around the world. >> tom: american investors were on edge about what that could mean for the u.s. economic recovery, susie. and markets were also troubled by a report today from europe, showing manufacturing activity
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in france and germany is shrinking, signaling europe still is in recession. the dow fell 78 points, recovering from a triple-digit loss earlier in the session. the nasdaq lost 12 and the s&p off ten. >> susie: joining us now, nick colas, chief market strategist at convergex group. hi, nick. >> hi, how are you. >> susie: i'm good, thank you. so china has been such an engine of growth. and you know, what's the truth about was's going on here. is it really a serious slowdown or are the fears loafer blown? >> so far it seems to be just the attempts of the chinese government to create a slowing chain ease economy. not to crash the economy. but because the economy has been growing so quickly for so long it has created a lot of imbalances and so investors are certainly worried that chinese policymakers attempt to slow the economy will result in what they call a hard landing with much slower growth versus a soft landing of much more moderate
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growth. >> susie: and what is the definition of much slower growth. china is growing at 8% which is an amazing number. what is the realistic number now? >> folks are hoping for a number between 7 and 8% for the next 12 months. that is still spectacular growth relative to the 2 to 3% growth that we have in the u.s. but by 7% growth it could mean that some of the imbalances such as in the property market come to the floor in china and investors are worried about that. >> susie: so what does all of this mean for american companies doing business in china or are big exporters to china? >> well, china has been a really important market. as a matter of fact, many economists credit the chinese growth over the past five years with forestalling a deeper recession or depression in the u.s. and europe so a host of companies whether in the coal sector, steel sector, automotive sector, building supply, all of them have benefitted from the growth in china. if the chinese economy does slow to a point where it is a hard landing, their earnings will certainly be hit over the next one to two
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years. >> if china is lowing down and europe is in prerecession having its own financial trouble was is the risk that the u.s. economic recovery will get off track? >> in the very near term that risk is relatively remote. the u.s. competent seems to have hit some kind of self-sustaining economic recovery in the past three to four months. the job growth a little better. help health a little better. i don't think the chinese hard landing will hurt that in the very near term. obviously in companies see their growth in china slowing or begin to see losses there they will think they are did-- in the u.s. but i don't think there is a near-term risk. >> susie: certainly today investors were very worried about the risks. and you saw what happened in the markets. are we in for a correction? while china goes through this cooling-off period? >> i tell you, institutional investors we talk to have been calling for a correction for the past two to three months sin the october rally really took off. we haven't had a really big pullback. this could be the correction that everybody has been looking for. but i think it's going to be a modest one.
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because of that underlying u.s. growth. i think invest letters not wait too long before coming into the market to leverage that growth going into the second quarter of the year which is a few days away. >> how much of a correction are you looking for. >> the typical definite next of a correction is 5%. i would be surpassed if we got that much this time around. again because of the growth we've seen recently. >> uh-huh. >> real quickly, is what is going on in china dictating your investment strat gae and 30 seconds or less? >> you know n short the answer is no. we're still recommend and overweight in u.s. equities since the growth is good there. and way would talk out the fact a lower china east grows make force cheaper gas prices into the summer driving season. >> susie: there is always a silver lining. thanks so much. >> thank you. >> susie: we've been speaking with nick colas, chief market strategist at convergex group. >> reporter: i'm darren gersh at the supreme court. tonight, we continue our look at the historic battle over the president's health care law. is it a sensible fix to a pressing problem, or a federal power play? >> tom: come summer, there will be a new number one at mcdonald's.
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c.e.o. jim skinner will retire after seven years at the top. the current number two, president and chief operating officer don thompson, will take over. over. erika miller looks at what this change means for the world's biggest burger chain. >> reporter: don thompson has every reason to smile, as he did back in 2008 when we spoke to him. >> we serve customers one at a time. >> reporter: thompson started at mcdonald's as an electrical engineer, and will now be in charge of engineering strong sales growth at the fast food giant. but it won't be easy filling jim skinner's shoes. skinner was one of the architects of mcdonald's successful turnaround strategy called "plan to win," which was rolled out in 2003. back then, the restaurants were run down, and some thought the company would go out of business. >> they said, "let's just focus on being better at what we do," and not necessarily bigger. so they really slowed down the growth, they shut down over 1,000 stores in the u.s., remodeled everything that was left over, revamped the menu.
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>> reporter: mcdonald's also sold off non-essential businesses, like chipotle and boston market. >> mcdonald's has been a stand- out performer in the fast food industry for years. it was able to post solid results even during the brutal economic downturn. the key has been keeping prices low with its popular dollar menu. but mcdonald's has been facing rising competition from wendy's and taco bell, which are testing breakfast foods in certain markets. and higher commodity costs are eating into profits. but in spite of the challenges, thompson's challenge will be to continue to execute the turnaround strategy. mcdonald's has upgraded its menu with angus beef, premium coffee, and smoothies, and it's also updating decor. >> they are going through a second phase of remodeling all the stores again. so this is the second time in less than ten years that they
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are going to remodel every store in the u.s. again. >> reporter: remodeling stores, as it remodels its management team. erika miller, "nightly business report," new york. >> tom: sydney finkelstein is a professor of management at the tuck school of business at dartmouth college. i joins us tonight from the nasdaq. you can hear us all right? >> i can, thank you, tom. >> tom: mcdonald's promoting somebody from inside its ranks. does that tell shareholders everything is okay, all is working according to plan? >> you know, any time a company promotes from the inside it telling me there's a good bench, a strong bench on leadership development team. and this guy don thompson say very talented person so i think that is a very photographs sign. >> also a long time insider he has been with the company better than 20 years. does this tell shareholders expect more of the same when he takes over the summer? >> well, he has been a partner really with jim skinner and the changes going on at mcdonald's so it's not like, you know, skin der this all on his own. jim thompson has been really
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a partner all the way through. so i think it's going to be a continuation of some of the same strategies, but there will be some challenges as well. >> tom: he's been credited with diversifying the menu that reignited sales growth at mcdonald's five years ago can. that sales growth momentum continue. what does very to go to innovate. >> it's a big challenge. because any time are you in this type of situation, a great success, tripling the stock and all the rest, there really are three or four ways to grow. most of them are good ways. some are not so good. new markets which means china, india, russia, new products. they added the breakfast menu, coffee. i don't know what the next product will be but i think they're working on it right now. and then of course improving the stores themselves with huge renovations going on, double drivethrough, the i would phi and all the rest. i think the one place for growth that is more dangerous is when you start thinking about growing outside of your core business. and i don't have any evidence to suggest that mcdonald's will do that but
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that is the one form of growth that tends to lead to disaster. >> tom: it has done the opposite of that to spur on the growth we have seen for the latter part of this decade. you mentioned the stock price. just the past area you've seen continued increase. a little weaker today, just below an all-time high though. is that a tough time to take over a company when a stock trading close to an all-time high. >> it is very hard. you know, you can go back and look at ge under jack welch and jeff-- took over dimelt took over, incredibly talented ceo who is dance form-- transforming that company as we speak. but came in september 11th as a double wammy, so when the stock is flying that high, it's a deeper, more difficult challenge but i think in the case of mcdonald's there is still a lot of room for am provement. >> tom: put you down for a hamburger or cheeseburger, sydney. >> cheeseburgering hold the ketchup. >> narrator: sydney finkelstein with us from dart pout college. -- dartmouth college.
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>> susie: the >> susie: the u.s. supreme court is preparing to hear arguments on a case that will affect every american, not to mention an industry that accounts for almost one dollar out of every five spent in the nation. we're talking, of course, about president obama's health care reform law. the high court will decide whether or not portions of the law are unconstitutional. tonight, we continue our series on what's at stake with a look at the limits of congressional power. darren gersh reports. >> reporter: when the supreme court takes up the debate over the president's health care reform law on monday, its first task will be to separate the constitutional issues from all the rhetoric. >> the question is not, is it a good law? it's not, is it an economically efficient law? it's not, is it a crazy law? the question is whether congress has the power to do what it has
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done. >> reporter: the obama administration argues congress used its constitutional authority to address a critical problem. the uninsured shift more than $40 billion a year in costs to the insured. to fix that, the administration says, congress decided to force free-riders in the health care system to either pay a penalty or buy insurance. and once it ended the cost shifting, congress was able to do away with longstanding problems in health care. one example-- the health care law says insurance companies can no longer refuse to cover people with pre-existing conditions. >> this is a direct consequence... a direct consequence of that prohibition, which everybody likes and everybody agrees is constitutional, is this concern about free-riders. >> reporter: the constitution gives congress the power to regulate interstate commerce. but the court will have to decide whether someone who chooses not to buy insurance is, in fact, engaging in interstate commerce. >> basically, in order to rule the mandate constitutional, the
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court will have to stretch the commerce clause, and critics of the mandate are saying that there's no limiting principle, there's no way that you can box in the commerce clause if you allow congress to force people to buy an insurance product. >> reporter: in a court closely divided between liberals and conservatives, the tiebreaker is often this man, justice anthony kennedy. >> he's known as a defender of federalism. if the supreme court upholds the mandates, that's going to signal a shift in power away from the states to the federal government, and i think that justice kennedy may be uncomfortable with that. >> reporter: many analysts say this case is a close call, and it may come down to whether the obama administration can convince the court that health care is a special case and the individual mandate is not a limitless expansion of federal power. darren gersh, "nightly business report," washington. >> susie: health care reform was supposed to help patients get better care.
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tomorrow, we'll check in with one chicago area doctor about how the law has affected the way he treats his patients. >> tom: more encouraging signs u.s. companies are hiring. the number of americans filing claims for the first time for unemployment benefits fell last week to a four-year low. jobless claims dropped by 5,000 to 348,000 last week. one sector continuing to add jobs is manufacturing. in tennessee, volkswagen is expanding its chattanooga plant. the german auto maker is adding 800 new american jobs as it looks to meet surging demand for its popular passat model. diane eastabrook reports. >> reporter: sales of the passat are booming. this chattanooga plant has been working overtime every day to keep up. >> our plan we are bringing the third shift online in the second half of the year. that will allow us to take the initial capacity up to 150,000 vehicles per year, with still some upside to go up to 170,000 vehicles a year. so, this is a very important next step in terms of the
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overall growth strategy for vw . >> reporter: what's driving that demand? vw north america c.e.o. jonathan browning says gas prices are at the top of mind with buyers. >> what we tend to see is people shifting their focus into passenger cars and into smaller passenger cars. passat is perfectly positioned for that, and the clean diesel passat. which is built here in chattanooga. >> reporter: adding to capacity at its southern tennessee plant means vw will have more cars to sell in north america, but it's also a boom to the southern tennessee economy. >> we've seen from prior experience that every job vw adds here is worth another four or five in terms of suppliers, so that's obviously a huge multiplier. >> reporter: tennessee's unemployment rate is sitting at about 8.2%, just a little below the national average. governor bill haslam says the state has done everything from working with community colleges
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to find qualified workers to providing infrastructure assistance. >> the truth is, every governor is out trying to make their state the jobs state. we're selling the things that are advantages to us-- our geographic location, our distribution/logistics capacity. healthcare has been a huge growth area for the state. if i had to point to one area, i would say it's manufacturing. >> reporter: audi, vw's luxury brand, is set to make a decision on its u.s. expansion plans later this year. governor haslam says should audi decide to build a plant in chattanooga, the state would welcome it with open arms. diane eastabrook, "nightly business report," chicago.
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>> susie: shares of priceline climbing higher in today's session, closing over $700 a share on the heels of a bullish call from piper jaffray. the brokerage firm's mike olson says shares of the online travel booking web site could hit $1,000 in the next two years. the catalyst? more people booking trips online in europe and asia. >> we continue to believe that priceline is going to continue to be able to gain share internationally. 80% of their bookings is outside the u.s. and, really, that is where their bread and butter is. and if you look at the penetration of online travel in those markets outside the u.s., it's only about 40% of the europe market is booked online, and only about 15% of the emerging markets is booked online. so it's a great market to be leveraged to. >> susie: olson says priceline will likely continue to see 20% earnings growth annually over the next few years.
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tom: they're shares are up more than 50% since the beginning of the year. susie, it's been quite a ride for priceline investors. let's take a look at tonight's "market focus." worries about the global economy were back on display today, with the major stock indices continuing to slide from their recent highs. the selling pressure was the worst we've seen today, with the s&p 500 spending the entire session in the red. the index hit its worst levels twice-- in the late morning, and with about an hour left to go in trading. and again, we saw those stock sectors that traditionally fuel global growth lead the market lower. energy fell more than 2%. materials was down by about 1.5%. and then financial stocks also were hit, down more than 1%. whenever the issue of global economic growth is questioned, energy prices likely will follow, and they did today. crude oil cooled by almost $2
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per barrel, falling below $106. prices continue trading in a $4 range as they have all month now. but a small drop in oil wasn't enough to help out another key stock sector. transportation stocks hit the brakes. this exchange traded fund tracks the dow jones transportation index. the fund fell more than 2%. it has backed off $96 per share twice this year. fed-ex shares were among those weighing on the transportation sector. f-d-x fell 3.5% as volume tripled. company comments added to the worries of a slower global economy as it forecast a slowdown in its own growth rate. that forecast came after a strong quarter, thanks to holiday shipping and higher prices. earnings easily beat estimates. the company says it will reduce capacity-- park planes in the desert as the company said-- until its u.s. express business picks up. separately, fed-ex has agreed to
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pay back wages and interest to more than 21,000 people who were rejected for jobs. it's a $3 million job discrimination settlement. after the close tonight, nike said its fiscal third quarter profits "did it," beat expectations. sales rose across all its geographies, even as the company hiked prices, but profit margins were dinged by faster rising costs. sales growth was strongest in china. shares fought against a weak tape today and continue rising after the close, up 1%. if that holds through tomorrow, shares would hit new all time highs. just day after reporting earnings, oracle shares saw a volume spike as shares pushed lower. trading volume was almost twice as heavy as it usually is. the stock fell more than 2.5%, closing at a one month low. we could see some action in semiconductor stocks tomorrow. after closing essentially flat today, micron shares fell more than 4% after the closing bell.
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the company said its recent pricing on chips was weaker than it would have liked. the company lost more money than feared last quarter due to those weaker selling prices for memory computer chips. one bright spot, though-- revenues were stronger than anticipated as it sold more chips. we had two new stocks come to market. exact-target shot up, partly thanks to its hot industry, software delivered via cloud computing. it's i.p.o. price was $19; tonight, it's above $25. and payment processor vantiv also saw strong demand its first day of trading. it priced at $17 and closed at $19.50. finally, precious metals were tarnished by today's risk-off attitude. gold fared the best, slipping only a half-percent. silver fell about 3%, and palladium dropped more than 5%. and that's tonight's "market focus."
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>> susie: a new study shows just how hard parts of president obama's proposed budget would hit wealthy americans. the non-partisan tax policy center ran the numbers and says the president's plan would raise taxes on the top 1% of earners by an average of $94,000. the analysis also shows the top third of taxpayers would pay more, but for most, the increase would be small. this is only if current tax policies like the so-called "bush tax cut" and the payroll tax cut are made permanent. the bottom line-- the tax center says raising taxes on the rich will do little to pay down the deficit. >> if you look at the entire budget, it's basically stabilizing the debt over the next decade at a very high level, and it leaves untouched
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the big drivers of the increased debt in the future, so it really isn't addressing the long-run budget problem. the best that can be said about it is it's keeping things from getting worse. >> susie: the president's budget needs approval by congress to be passed into law, but experts agree it probably won't happen in this election year. >> tom: the tax man is waiting. federal taxes are due april 17, a couple of days later than usual, but that's less than a month away. all next week, kevin mcccormally joins us with his best tax advice. he's editorial director of kiplinger's personal finance. and he's taking your tax questions online. just email taxtips@nbr.com. >> susie: what happens when your kid loses the $20 bill grandma sent in his birthday card? in tonight's "kids and cash," helping your kids learn about and recover from money mistakes. here's alisa weinstein, author of "earn it, learn it." >> we know there's no good time to make a money mistake, so when we go to teach our kids about
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money, we'll do everything in our power to make sure they don't make one. we stay on top of the money they earn and receive, tell them exactly where to put it and how they should spend it. and that is our mistake. i'm not talking about education and guidance. i'm talking about messing up big-time-- that's what you do when you're a kid. you remember-- you spend money on a toy and it breaks the first time you use it. you lose your quarter and can't buy a treat with all your friends. it's painful, it's heartbreaking, but it's also memorable. and it's fixable-- not by parents rushing to replace the money that's been spent or lost, but by staying strong. give a hug and encourage your child to take a look at where she went wrong and how she could do better next time. being a kid is the one time in life when it's not only okay to make money mistakes, it's critical. these errors are not going to affect their credit. they're going to reinforce their ability to problem-solve and even help them become more resilient when things don't go the way they planned, which, from a parenting standpoint,
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doesn't sound like a mistake to me. i'm alisa weinstein. >> tom: here's what we're watching for tomorrow: more housing data-- we'll get the february numbers on new home sales. and our friday "market monitor" guest is randall eley. he invests only in s&p 500 stocks, and with the index near post-recession highs, we'll see what he's been buying. >> susie: and finally, are you feeling richer? the number of millionaire households is on the rise, nearing pre-recession levels. a new survey shows households with a million dollars in assets, not including their primary residence, rose by 200,000 last year to over 8.5 million homes. before the recession hit, the nation had over nine million millionaire households, but that fell sharply as the financial crisis took hold in 2008. still tom, more than half of the high-net worth folks surveyed say they worry about holding onto their investments and even things like paying for college.
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>> climbing that wall of >> susie: that's "nightly business report" for thursday, march 22. i'm susie gharib. good night, everyone, and good night to you, too, tom. >> tom: good night, susie. i'm tom hudson. good night, everyone. we hope to see all of you again tomorrow night. "nightly business report" is made possible by: captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org
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